Economic facts should dispel recession fears
Output should grow 3% this year, nearly double the last assessment from the ESRI, who recently cut its forecast from over 2% to 1.6%.
While housing has tanked, the rest of the economy is doing pretty ok, according to the bank.
The bank feels we still have enough in the economic tank to deliver 3% growth for the current year, including 40,000 new jobs.
The ESRI said job losses in construction will neutralise gains elsewhere.
BoI has been good, however, at reading the economic tea leaves as it showed when the dotcom bubble rocked global stock markets and recession was forecast for Ireland.
Back then, Dan McLaughlin, Bank of Ireland’s chief economist, said the forecasts were not justified and he is saying the same thing now.
The Federal Reserve Bank took the decision to slash interest rates to 1% to counter the massive sell off of US stocks.
That clever ploy kept consumers spending and they drove the US back towards trend growth that, regrettably, helped spawn the insanity that now threatens to drive the US into a protracted recession.
Ben Bernanke, the Fed’s chairman, has already slashed rates to ensure the US again avoids a crippling recession on this occasion.
Analysts are now suggesting the Fed has already done enough by cutting rates to 2.25% from 5.25% since September last year.
But this time banks are afraid to lend to each other. Despite the billions pumped into global markets, the cost of credit among banks is way above the norm.
BoI points out that the credit crunch phenomenon was the only serious imponderable tugging at the heels of the global economy.
And while world output continues to grow above the trend of the past 20 years, it is simply impossible to say how the credit crunch will ultimately be resolved.
How many more banks will go to the wall is still an open book.
Until that issue is resolved, uncertainty is washing its way through the banking system, radically slowing the pace of investment internationally.
On a parochial level, uncertainty caused by the housing market’s decline poses a conundrum for forecasters.
Mr McLaughlin noted that 10,000 homes were built in the first two months of 2008, not a statistic one could have reasonably expected.
In that context, Independent News & Media said advertising in the housing sector simply isn’t happening this year and it saw little chance of a recovery in the market in 2008.
That in itself or indeed the obvious fall in house prices, well more than the 7% the likes PermanentTSB have been suggesting, doesn’t necessarily mean we have reached the end of the rainbow in Ireland.
Dan McLaughlin, in common with National Irish Bank’s Ronnie O’Toole, has referred to the strong growth in the services areas that is helping to keep the economy from going under.
Mr O’Toole said last year that this phenomenon has not been fully understood.
Productivity gains have knocked 35% off operating costs in recent years, giving us a serious competitive edge internationally.
Housing was never the full story of this economy and even if house prices fall 20% or even 30% this year, it will not mean the end of the line for Ireland Inc.
An important consideration is the industries we have developed in key areas such as healthcare and software development.
Even if we fail to reach 3% growth this year, bear in mind the rest of Europe will average 1.7% this year and less than 2% in 2009.
For us it is a matter of perception and of deciding to place facts ahead of fear.
